Bitcoin's 7-fold network effect is as follows:
Level 1: Speculation
Bitcoin is a novel, crypto-backed asset class with appreciation potential and high volatility, making it ideal for those with a strong risk tolerance Speculator. HODL!
Level 2: Merchant adoption
Merchant Will increasingly accept Bitcoin as they can avoid credit card fees and charges, thereby increasing profit margins.
Level 3: Consumer adoption
Consumer adoption You can use Bitcoin to save money at certain vendors. For example, you can get a 20% discount on Amazon when you spend Bitcoin through your wallet. Additionally, consumers can use Bitcoin to buy things that they cannot (easily) buy otherwise. Consider this: Despite the trade embargo, Americans can buy Persian rugs or Cuban cigars online. Bitcoin increases the efficiency of the economy, especially in these niche areas.
Level 4: Security
Businesses and consumers And adoption by speculators will bring higher prices, thus motivating more miners to participate and ensure system security. The decentralized, immutable transaction ledger is also a form of triple-entry accounting, where debits plus credits plus network confirmation of transactions increase trust and accountability throughout the system.
Level 5: The spiritual high ground of developers
Bitcoin is a foolproof, predictable network with simple rules and publicly auditable code. It is fertile ground for developing complex algorithms, machine-to-machine payment protocols, smart contracts, and other tools. Its decentralized nature allows for innovation without permission. Since Bitcoin already dominates the cryptocurrency space as a store of value and medium of exchange, altcoins such as Litecoin and Ethereum pose little threat. If you have any doubts about the importance of this monetary network effect, or are worried that altcoins will overtake Bitcoin in other ways, I recommend you check out Daniel Krawisz’s insightful and thought-provoking article: “Altcoins” Coin is about to die" (translated by Liu Jiaolian on September 23, 2022). Ultimately, developers will continue to flock to Bitcoin.
Level 6: Financialization
In remittances, In areas such as micropayments, peer-to-peer lending, and stock and securities trading, Bitcoin will gradually erode the market share of traditional banking institutions. This process has already begun (Nasdaq supports open assets/colored coins for securities transfers, NYSE invests in Coinbase, etc.). It is possible that older currencies will become obsolete because they are unwilling to accept new protocols like Bitcoin.
Level 7: Adopted as the world’s reserve currency
Eventually all transactions will be settled on the blockchain, including home ownership, stock purchases, car ownership, and other monetary instruments and currencies. The first to sixth network effects will eventually form this final network effect. Any up-and-comer in the world of cryptocurrencies or traditional currencies needs to beat Bitcoin on all seven of these fronts. This is unlikely to happen given the pace of development of Bitcoin Core, the level of global investment in Bitcoin companies, the growth of the Bitcoin user base, and more. Finally, a speculative attack could significantly increase the value of Bitcoin overnight.
Bitcoin is a powerful currency: it thrives on the Internet; it frees users from third parties; it saves merchants money; it It's deflationary; its code can be audited by everyone; its developers work tirelessly to improve it; and the list goes on. The network effects mentioned above will only make it more powerful. Competitors beware.
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Cointelegraph